According to a study by Hewitt Associates 8 out of 10 people will reach retirement and find their savings insufficient to meet their needs. The study indicates that if you consider inflation, and increasing medical costs in retirement years that workers need to have 15.7 times their final salary in savings prior to retirement.
If you factor in Social Security, you may be able to reduce your savings to 11 times. Note: If you are under 45, you can expect that by the time you retire that Social Security and Medicare will undergo some dramatic transformations resulting in a reduced payout.
Let consider how that could impact you: In our area, the average household income is approximately $55,000 and the average retirement savings is $50,000 (assuming two workers with $25,000 each in retirement accounts). In order to have funds for your retirement, you would need to have $863,500 in your retirement accounts (for the household).
The good news is you already have $50,000 saved, the bad news is you will need $813,500 more. Let's be optimistic and say that you will have $258,500 that will come from Social Security (4.7 times your annual income). Now all you will need is an additional $555,000. You can either rub your magic gennie, or play the lottery in hopes of winning the jackpot, or you can make plans now to prepare.
How much you need to save depends on how old you are. At age 20, you could save as little as $25 per week 2% of your income. By age 35 the amount grows to 8% of your income, at age 45 you need $217/week or 20% of your income and by age 55 you would need to be saving a whopping $697/week or 66% of your income to meet your retirement needs.
Moral of the story, if you are younger, start now and you can make time and compounding work for you. If you are older, you will need to rethink your retirement strategy to either find additional sources of income for your retirement or to find ways to cut retirement costs. If you want to find out how much it will really cost for you to retire on your current income, check out the ball park estimator from Choose to Save http://www.choosetosave.org/ballpark/. You can input your own estimations to find out how much you need to save for retirement.
Power Pay your Debt
OK, I made my commitment to saving but it is really hard because so much of my take home is already spent by the bills coming through the door. Breaking the cycle of debt can seem like peddling up a steep incline, but here is a trick that might just help.
Step 1:Create a budget that you can live on month to month. If you need help getting started, check out some of the partners with Virginia Saves most offer free helpful budgeting advice and often free budget worksheets to get started. For a FREE online resource, check out www.mint.com for a free electronic budgeting tool or visit www.crown.org/tools for free budgeting worksheets.
Step2: For the Debt Category, create a separate checking account and have the amount deposited automatically from your paycheck into that new account. The debt category will include all loans: mortgage, auto, credit card, personal loans etc.
Step 3: Pay all Debts from that new checking account. Any additional funds above the minimum monthly payment get applied to the account with the highest interest rate. The checking account will return to the minimum monthly balance after bills are paid.
Step 4: POWER PAY: Once the first account is paid in full, apply the amount that was paid to that account to the account with the next highest interest rate. This accelerated payment will expedite the time until you are debt free.Maintaining the separate checking account will keep you from being tempted to use the proceeds available once the first debt is paid off for regular monthly expenses. Once you are completely debt free including your mortgage, apply this account to grow your savings for retirement and other large expenses.
Step 1:Create a budget that you can live on month to month. If you need help getting started, check out some of the partners with Virginia Saves most offer free helpful budgeting advice and often free budget worksheets to get started. For a FREE online resource, check out www.mint.com for a free electronic budgeting tool or visit www.crown.org/tools for free budgeting worksheets.
Step2: For the Debt Category, create a separate checking account and have the amount deposited automatically from your paycheck into that new account. The debt category will include all loans: mortgage, auto, credit card, personal loans etc.
Step 3: Pay all Debts from that new checking account. Any additional funds above the minimum monthly payment get applied to the account with the highest interest rate. The checking account will return to the minimum monthly balance after bills are paid.
Step 4: POWER PAY: Once the first account is paid in full, apply the amount that was paid to that account to the account with the next highest interest rate. This accelerated payment will expedite the time until you are debt free.Maintaining the separate checking account will keep you from being tempted to use the proceeds available once the first debt is paid off for regular monthly expenses. Once you are completely debt free including your mortgage, apply this account to grow your savings for retirement and other large expenses.
Moms - Do you Struggle with your Juggle?
Moms all know the great pressures that are placed on women. Managing the priorities of home, meals, marriage, children, social, health, spiritual and financial goals can be overwhelming. Each of us is on a journey through life and while each of these pressures have independent demands, they are very much interdependent.
Our lives are multifaceted and complex. We can't just carve out our financial goals from all the rest of the chaos that is our life. Juggling multiple priorities is something that women struggle with throughout all our lives. Finally there is a is a group that gets it... we are complex and have many priorities that all need attention we need help that understands we can't just drop one ball to give attention to the others.
One of our Virginia Saves Partners, Crown Financial Ministries has put together a wonderful resource for women to share ideas and support called The Struggle of the Juggle - www.struggleofthejuggle.com. It is good to know that you are not alone in this journey and that help and support are available. If you understand the stress of managing multiple priorities, check it out!
Our lives are multifaceted and complex. We can't just carve out our financial goals from all the rest of the chaos that is our life. Juggling multiple priorities is something that women struggle with throughout all our lives. Finally there is a is a group that gets it... we are complex and have many priorities that all need attention we need help that understands we can't just drop one ball to give attention to the others.
One of our Virginia Saves Partners, Crown Financial Ministries has put together a wonderful resource for women to share ideas and support called The Struggle of the Juggle - www.struggleofthejuggle.com. It is good to know that you are not alone in this journey and that help and support are available. If you understand the stress of managing multiple priorities, check it out!
A Financial Storm May be Blowing - Are you Ready?
Many times when we think about preparing for disasters, we think of those catastrophic events like hurricanes, flu epidemics or terrorist attacks. While we do live in a dangerous world with major threats that impact us, the greater dangers that threaten to topple our financial house of cards may be much less noticeable. It is generally the small disaster that will throw our plans into crisis.
Consider the following unexpected crises... would you be able to weather these financial storms of life?
1. $1,000 deductible for a car accident
2. Child out of school for a week with a contagious disease
3. 10% pay reduction
4. 6 weeks of bedrest while you recuperate from an injury
5. New tires for your car
6. Refrigerator broken
7. Gas prices increase by .75 per gallon
8. Tree topples onto your home during a windstorm
9. Parent requires full time assistance at home
10. Long term illness requiring ongoing medical treatment
11. Job Loss
For most families, these seemingly small setbacks can spell financial disaster if your family does not have a plan. Studies show that households experience on average approximiately $2,000 of unexpected expenses every year, but the average savings for households was $392 in 2008.
So how do we meet those unexpected expenses? For many families unexpected expenses mean credit card debt, but they have also depleted any savings reserve, and sometimes our retirement funds in order to meet the obligations. As a nation we have relied on credit to sustain us through. Even now our government sets the example as they have been increasing the nations debt rolls throughout this economic crisis. We have learned from our leaders, but not always the best lessons.
How do we regain control of our future and prepare for those unexpected things? Here are some suggestions for building a storm shelter for your finances:
1. Prioritize your monthly spending: Having a spending plan that assigns priorities to the needs and is prepared to cut out the "wants" is critical. Seriously think through the purchases you make and determine if they are truly necessary.
2. Know what your are spending - Really: Tracking spending seems like a tedious exercise, but few households truly know what they are spending month to month without a monitoring system. Write down every single expense for the next 30 days and tally up the categories of spending.
3. Set boundaries around discretionary spending: While you may have enough money to go out to eat without pulling out the plastic, the extra meals may usurp the amount that you can tuck away into savings for emergencies, vacations, replacement car, education and retirement.
4. Cash is King: One way to keep the boundary intact is to use cash only for discretionary spending. When it is gone it is gone. People who use plastic or even checks for spending tend to spend more than those who use cash only.
5. Keep Savings Separate: Keep savings in a separate account that is not frequently used. Savings should be readily accessible, but not so much that you use it for monthly purchases.
6. Map out irregular spending: Set a limit that you can spend on things like, clothes, vacation, presents, trips, back to school etc. Add up the yearly spending and divide by 12. That is how much you will need to set aside to meet your need. Taking a $600 vacation? That will be $50 per month thank you! When you spread out the costs over the year, you will have less financial stress after the trip is over.
7. Just say no to credit cards: If something is important and necessary, save for it. Retailers know how to make us purchase emotionally. Let's take control back and avoid the pressures they place on us.
8. Prepare for the windfall: The problem with windfalls is that we have a surge of elation over the extra dollars available for spending and we tend to place those dollars where ever the greatest pull is at the time. That is why so many families end up with plasma TVs at tax time rather than paying down debt. If you map out a strategy for how extra funds will be applied, you can reduce the tendency to buy on impulse. If you create a plan ahead of time like 40% Debt Reduction, 40% Savings and 20% for fun you can use these unexpected windfalls to further your financial plan.
By gaining control over your monthly spending plan, you can increase your savings so that when the financial storm blows you can weather through and not have to worry about the ship sinking. There are tons of savings and debt reduction strategies at www.virginiasaves.org and if you need someone to help you build your storm shelter, just contact me at virginiasaves@gmail.com and one of our Financial Mentors would be glad to guide you through the process.
Consider the following unexpected crises... would you be able to weather these financial storms of life?
1. $1,000 deductible for a car accident
2. Child out of school for a week with a contagious disease
3. 10% pay reduction
4. 6 weeks of bedrest while you recuperate from an injury
5. New tires for your car
6. Refrigerator broken
7. Gas prices increase by .75 per gallon
8. Tree topples onto your home during a windstorm
9. Parent requires full time assistance at home
10. Long term illness requiring ongoing medical treatment
11. Job Loss
For most families, these seemingly small setbacks can spell financial disaster if your family does not have a plan. Studies show that households experience on average approximiately $2,000 of unexpected expenses every year, but the average savings for households was $392 in 2008.
So how do we meet those unexpected expenses? For many families unexpected expenses mean credit card debt, but they have also depleted any savings reserve, and sometimes our retirement funds in order to meet the obligations. As a nation we have relied on credit to sustain us through. Even now our government sets the example as they have been increasing the nations debt rolls throughout this economic crisis. We have learned from our leaders, but not always the best lessons.
How do we regain control of our future and prepare for those unexpected things? Here are some suggestions for building a storm shelter for your finances:
1. Prioritize your monthly spending: Having a spending plan that assigns priorities to the needs and is prepared to cut out the "wants" is critical. Seriously think through the purchases you make and determine if they are truly necessary.
2. Know what your are spending - Really: Tracking spending seems like a tedious exercise, but few households truly know what they are spending month to month without a monitoring system. Write down every single expense for the next 30 days and tally up the categories of spending.
3. Set boundaries around discretionary spending: While you may have enough money to go out to eat without pulling out the plastic, the extra meals may usurp the amount that you can tuck away into savings for emergencies, vacations, replacement car, education and retirement.
4. Cash is King: One way to keep the boundary intact is to use cash only for discretionary spending. When it is gone it is gone. People who use plastic or even checks for spending tend to spend more than those who use cash only.
5. Keep Savings Separate: Keep savings in a separate account that is not frequently used. Savings should be readily accessible, but not so much that you use it for monthly purchases.
6. Map out irregular spending: Set a limit that you can spend on things like, clothes, vacation, presents, trips, back to school etc. Add up the yearly spending and divide by 12. That is how much you will need to set aside to meet your need. Taking a $600 vacation? That will be $50 per month thank you! When you spread out the costs over the year, you will have less financial stress after the trip is over.
7. Just say no to credit cards: If something is important and necessary, save for it. Retailers know how to make us purchase emotionally. Let's take control back and avoid the pressures they place on us.
8. Prepare for the windfall: The problem with windfalls is that we have a surge of elation over the extra dollars available for spending and we tend to place those dollars where ever the greatest pull is at the time. That is why so many families end up with plasma TVs at tax time rather than paying down debt. If you map out a strategy for how extra funds will be applied, you can reduce the tendency to buy on impulse. If you create a plan ahead of time like 40% Debt Reduction, 40% Savings and 20% for fun you can use these unexpected windfalls to further your financial plan.
By gaining control over your monthly spending plan, you can increase your savings so that when the financial storm blows you can weather through and not have to worry about the ship sinking. There are tons of savings and debt reduction strategies at www.virginiasaves.org and if you need someone to help you build your storm shelter, just contact me at virginiasaves@gmail.com and one of our Financial Mentors would be glad to guide you through the process.
How I Paid Off Over $70,000 in Debt and Quit My Job | Eventual Millionaire
I get inspired when I read success stories. I found this blog called Eventual Millionaire about how one couple was able to pay off debt and quit her job too to raise a family. I know our savers have made lifestyle changes that have enabled them to start their own journey toward their savings goals. If you have a story, please send it to virginiasaves@gmail.com and perhaps we can share your success to inspire others!
Here is a quick history on what my husband and I did to pay off over $70,000 in debt in a year and how I quit my job even though I made over 2/3rds of our income!Jaime, How I Paid Off Over $70,000 in Debt and Quit My Job Eventual Millionaire, Apr 2010
You should read the whole article.
Budget Training for Children
My home when I was growing up was pretty unique. My mother created a cool system of punishments and rewards. I can't say that I appreciated it as much when I was growing up, but now that I am older, I really do reap the benefits of financial training.
I know there is a lot of controversy about giving allowances to children and tying money as a reward for children's performance whether it be grades or chores, but just try this on for size:
My mother had a system of chores that were assigned to the children. Everyone had a role to play by virtue of being a member of the family. There was a given expectation that some work is expected just because you are a member of the family "team". Generally, those chores consisted of things like setting the table, cleaning up dishes after dinner, sweeping the floor, folding laundry, etc. Since we had three children in our home, each able to manage the tasks, we rotated the list either on a daily or weekly basis.
Beyond the chores, Mom had a list of tasks that could be completed for money. She assigned a dollar value to things like mopping, vaccuuming, dusting, cleaning closets, whatever needed extra attention. We were expected to earn money for extra curricular activities, like trips and special events (sometimes with a matching program if the costs were especially high). The interesting thing was that Mom was training us to work and personal responsibility. We could choose how much we wanted to earn, even though my parents had limited income.
Our incentives were to do the fun activities we wanted to do with our friends and later in our teens we were expected to supplement the school clothes budget with our own funds. In exchange we got greater discretion over the choices in what we wore and what we did.
For the "chores" we were expected to ensure that the task was completed. We were given latitude about whether we completed the chore ourselves or we could "hire" it done. Even in hiring it done, the assigned person was responsible for ensuring that it was completed to Mom's satisfaction.
My brother was not fond of chores, so he would often hire his done by me. Being the capitalist that I am, I did not work for free so we devised our own currency system...matchbox cars. He had a collection of them and was willing to part with a few treasures in order to have time to do the things he wanted to do.
As I grew into my later teens, I went into babysitting and then obtained a part time job on my own. The training had already been put in place, but with my own money coming into the picture, I had greater responsibility for managing my financial affairs. Balancing a checkbook and creating a spending plan were now part of my life preparing me for the things I was going to need to know when I launched out officially from the nest.
With Mother's Day just around the corner, I am grateful that I had a Mom who was so creative in training us to be responsible for our choices and to instill a hard work ethic into me before I left home. The training I received as a child has had a lasting impact on the choices I made early in my adult years and my attitudes about work and spending even today. Thanks Mom!
I know there is a lot of controversy about giving allowances to children and tying money as a reward for children's performance whether it be grades or chores, but just try this on for size:
My mother had a system of chores that were assigned to the children. Everyone had a role to play by virtue of being a member of the family. There was a given expectation that some work is expected just because you are a member of the family "team". Generally, those chores consisted of things like setting the table, cleaning up dishes after dinner, sweeping the floor, folding laundry, etc. Since we had three children in our home, each able to manage the tasks, we rotated the list either on a daily or weekly basis.
Beyond the chores, Mom had a list of tasks that could be completed for money. She assigned a dollar value to things like mopping, vaccuuming, dusting, cleaning closets, whatever needed extra attention. We were expected to earn money for extra curricular activities, like trips and special events (sometimes with a matching program if the costs were especially high). The interesting thing was that Mom was training us to work and personal responsibility. We could choose how much we wanted to earn, even though my parents had limited income.
Our incentives were to do the fun activities we wanted to do with our friends and later in our teens we were expected to supplement the school clothes budget with our own funds. In exchange we got greater discretion over the choices in what we wore and what we did.
For the "chores" we were expected to ensure that the task was completed. We were given latitude about whether we completed the chore ourselves or we could "hire" it done. Even in hiring it done, the assigned person was responsible for ensuring that it was completed to Mom's satisfaction.
My brother was not fond of chores, so he would often hire his done by me. Being the capitalist that I am, I did not work for free so we devised our own currency system...matchbox cars. He had a collection of them and was willing to part with a few treasures in order to have time to do the things he wanted to do.
As I grew into my later teens, I went into babysitting and then obtained a part time job on my own. The training had already been put in place, but with my own money coming into the picture, I had greater responsibility for managing my financial affairs. Balancing a checkbook and creating a spending plan were now part of my life preparing me for the things I was going to need to know when I launched out officially from the nest.
With Mother's Day just around the corner, I am grateful that I had a Mom who was so creative in training us to be responsible for our choices and to instill a hard work ethic into me before I left home. The training I received as a child has had a lasting impact on the choices I made early in my adult years and my attitudes about work and spending even today. Thanks Mom!
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